… but the young might quit

Date: 19/01/06

With the highest unemployment and lowest gross domestic product (GDP) growth in the Balkans, Macedonia finds itself struggling by most measures of economic performance.

Unemployment is estimated to stand at over 30%, a situation described bluntly by one EU official as "horrible", and GDP growth has fallen from 4.5% in 2000 to 2.5% in 2004 - from an already low starting point.

According to one financial consultant who has worked in the capital Skopje for more than a decade, the economic environment has not improved much since the near civil war in 2001, despite privatisations and international organisations, including the EU, offering substantial assistance.

"The problem is [that] the government's interests are not the same as those of the business community," she says.

"Whichever law they enforce, they are not communicating with business and, if they do, they do not respect our views."

She says plans to reform the tax system are just one example.

Although the income tax burden remains low, with a top rate of 24%, the proposals would increase the burden on companies and employees - giving companies even less incentive to hire staff and punishing those who do pay taxes.

Unclear property laws and an uncertain political environment have kept foreign investors away.

"This year foreign investment was $88 million, which is very low, in comparison with Serbia which was over $1 billion, even given the differences in size this is very low," the consultant says.

Big business and EU-inspired reforms, she adds, offer the only hope; "there is a hope this [EU] candidate status will encourage investment from big foreign companies who will change the mindset of politicians."

So far Macedonia has been unable to reap the benefits that Croatian firms report after progressing on the path to EU membership.

According to Natko Vlahovic of the Croatian Chamber of Trades and Crafts, the opening of EU membership talks has introduced a new dynamism into the economy. "Competitive businesses are looking for new growth opportunities and increasing their market share before entering the single market," he says.

"Soon Croatian legislation will be fully harmonised with the acquis communautaire. This fast transition will stabilise the markets and improve legal security for investors and entrepreneurs."

But there are black spots on the horizon.

Serbia and Bosnia and Herzegovina face similar levels of unemployment and some Belgrade-based observers point to inflation and falling living standards.

With many of the Balkans' youth going abroad and birth rates slipping below Western European levels, observers such as Franz-Lothar Altmann of the Berlin-based think-thank SWP have warned that the region may be dying.

According to a study by one Serbian think-tank up to 300,000 young Serbs may be leaving the country every year. In a poll conducted last year 43% of 16-35-year-olds said that they were ready to leave the country.

Such is the extent of the brain drain that many of the major European and North American University campus sport a Serbian students' association.

But there are limited signs that, like the influx of returnees witnessed in the Baltic States after independence, the tide may be turning.

Sava Marinkovich, a second generation Serb who studied at Harvard Business School and who now works for General Electric in Paris, says many young educated Serbs are eager to return and to help transform the country.

"The security situation has improved...we are looking at opportunities and trying to stay involved in promoting business in Serbia," says Marinkowich.

Article takes a look at the economic situation in the countries of the Western Balkans, most of which are suffering from soaring unemployment, slow economic development and the fact that many thousand young people are leaving every year. Article is part of a European Voice Special Report, 'EU-Balkans'.